Sunday, 31 July 2011

Finances Involved at the Start of a Business

There are many aspects that you will encounter when starting up a new business, from needing to get professional indemnity insurance to hiring staff, but all small businesses require personal finances from the owner. The business could be considered as a separate unit, as, mostly likely, the owner is not going to have any source of income in the set-up phase of the business. With this knowledge, there should be an implemented strategy that will cover budgeting for this situation prior to the start-up of the business so that there is a pool of finance that can be used.

An initial step would be to, on a daily basis, keep very close attention to any expenditure for the first few months so that the owner can get a good overview of any expenses. This will then cover any surprises that are unforeseen at the stage in the process. Once this is clear where the money will go, a budget can be created for when your income will be affected. A good idea would then be to pay off any outstanding loans such as your house, your car, or any credit debts you may have.

It is essential to make sure you have enough money to continue with your business, which many new businesses may neglect, and in turn, return to employment due to lack of funds.

Other than personal finances, if, as a new business, you are in need of a business loan, the bank will use your credit rating in order to evaluate whether or not you can have then loan. Since there is no history of the company, it is a lot more difficult for the bank to give out a loan, hence, the best option that they have is to look at the credit history of the owner of the business.

What will this mean for your business? It means that the best way for your business to be accepted for a loan is for you personally to check your own credit reports for any flaws or errors in it. Due to errors in the system, there have been actual cases where it has taken extra months to correct them, and the required loan need for the business to begin trading properly have been postponed.personal finances

The conclusion to all of this is that the business is considered separate when registered as a private limited company. If there is only a single owner of the small business, they may not be regarded as separate from the business; therefore, the owners should be as well-informed as possible in the areas that will require more focus.